They’re all wrong.
Jim Cramer, star of CNBC’s “Mad Money,” is still describing Fed policy as tight and Chairman Ben Bernanke as behind the curve. Some who echo that sentiment hold up former Fed chief Alan Greenspan as a better role model. Check the record:
- The US economy went into recession in the summer of 1990 when Iraq invaded Kuwait and oil prices soared. But Greenspan repeatedly denied the economy was in recession until the recession was almost over in early 1991, and the fed‐funds rate was still 6 percent. Long after the recession ended, in October 1992, the Fed cut the fed‐funds rate to 3 percent.
- In 2000, stocks fell sharply after April and industrial production began to fall in July. Yet the Fed kept the fed‐funds rate at 6.5 percent until January 2001 and didn’t ease aggressively until after 9/11. In June 2003, long after the recession ended, the fed‐funds rate was cut to 1 percent.
Bernanke, by contrast, thinks easing before a recession is wiser than easing two years too late.
Other critics say Fed policy is wildly inflationary. “The Education of Ben Bernanke,” a recent New York Times Magazine cover story, worried that “any rate cut would tend to escalate the stampede out of the dollar” — a stampede that in turn supposedly risks a return to double‐digit inflation, “a wage‐and‐price spiral similar to that in the 1970s.” All such “stagflation” analogies are absurd.
In December 1979, consumer prices were 13.3 percent higher than a year before. Excluding food and energy, core inflation was still 11.3 percent. Compare today’s numbers: Every major measure of core inflation was up 2 to 2.2 percent last year. All such measures have hovered very close to 2 percent since 2001 — much lower than in the 1980s or 1990s, much less the 1970s.